Skip to main content

Full text of "Overview of H.R. 1622 (Cotton Research and Promotion Program Act of 1987) and possible alternative funding sources : scheduled for a public hearing before the Committee on Ways and Means on November 17, 1987"

See other formats


OVERVIEW OF H.R. 1622 
(COTTON RESEARCH AND PROMOTION PROGRAM ACT OF 1987) 
AND POSSIBLE ALTERNATIVE FUNDING SOURCES 

Scheduled for a Public Hearing 
Before the 
COMMITTEE ON WAYS AND MEANS 
On November 17, 1987 

Prepared by the Staff 
of the 
JOINT COMMITTEE ON TAXATION 



November 16, 1987 
JCX-21-87 



CONTENTS 

Page 

INTRODUCTION 1 

I. SUMMARY OF THE COTTON RESEARCH AND PROMOTION 

PROGRAM 2 

II. ALTERNATIVE FUNDING SOURCES FOR THE COTTON 

RESEARCH AND PROMOTION PROGRAM 4 

A. H.R. 1622 4 

B. Dedicated Excise Tax Funding Source and 

Trust Fund 5 

C. General Revenues 5 

D. Expansion of Current Program 5 

APPENDIX — U.S. COTTON PRODUCTION AND TRADE, 

MARKETING YEARS, 1960-1986 6 



INTRODUCTION 

This document , ■'• prepared by the staff of the Joint 
Committee on Taxation, provides an overview of current 
funding of the U.S. cotton research and promotion program, a 
proposed fee mechanism to finance the program under H.R. 1622 
as reported by the House Committee on Agriculture, and other 
possible funding sources, including an excise tax on cotton 
to finance the program.-^ 

H.R. 1622 has been sequentially referred to the 
Committee on Ways and Means through December 4, 1987. The 
Committee on Ways and Means has scheduled a public hearing on 
the bill and possible funding alternatives on November 17, 
1987. 

The first part of the document is a summary of 
present-law financing of the cotton research and promotion 
program. The second part describes H.R. 1622 and possible 
funding alternatives. An Appendix presents data on U.S. 
cotton production and trade. 



-'- This document may be cited as follows: Joint Committee on 
Taxation, Overview of H.R. 1622 (Cotton Research and 
Promotion Program Act of 1987) and Possible Alternative 
Funding Sources (JCS-21-87), November 16, 1987. 

2 H. Rep. No. 100-339, Part 1, October 5, 1987. 

^ See Committee on Ways and Means, Press Release #20, 
November 10, 1987. 



-2- 
I. SUMMARY OF THE COTTON RESEARCH AND PROMOTION PROGRAM 



The Cotton Research and Promotion Act of 1966 (the 
"Cotton Act") authorized the establishment of a Cotton Board 
to help the domestic cotton industry, in the face of a 
declining market share, to compete better with the synthetic 
fiber industry through the development of more efficient 
processing equipment and new and improved cotton products, 
and by increasing consumer awareness and acceptance of cotton 
products . 

Similar research and market development programs apply 
to pork, beef, honey, and certain other agricultural 
commodities . 

Originally, the cotton program was supported by a 
refundable assessment of $1.00 per bale of cotton, collected 
by a middleman in the raw cotton trade, with supplemental 
funding to be provided by the Federal Government. The 
assessment applied to all domestically produced upland 
cotton, including cottonseed from such cotton. The Cotton 
Act called for a referendum in which not less than two-thirds 
of all U.S. cotton producers (or more than one-half of all 
cotton producers representing at least two-thirds of total 
cotton production) approved the program. In 1976, the Cotton 
Act was amended to permit an increase in the assessment by 
the Cotton Board of up to one percent of the value of the raw 
cotton, in addition to the $1.00 per bale assessment, if 
producers approved the increase. 

Currently, the $1.00 per bale assessment continues to be 
levied on cotton produced in the United States. In addition, 
an amount equal to 0.6 percent of the value of the cotton 
(determined at the point of first sale) is added to the $1.00 
per bale amount. Revenues from these assessments are used 
to fund a cotton research and promotion program administered 
by the Cotton Board. 

Assessments are collected from producers by handlers 
(those engaged in harvesting, marketing, ginning, etc.) of 
cotton as designated by the Board. The Board has the 
authority to refund assessments to any producer not desiring 
to participate in the program. The Board also has the 
authority to conduct a referendum at any time, and is 
required to hold a referendum on the continuation of the 
assessment upon the request of 10 percent or more of the 



Although the original funding mechanism authorized 
direct contributions of Federal funds to the Cotton Board, no 
such contributions have been made since 1977. Thus, the 
program is now entirely self-funded. 



-3- 

producers. 

The Board is comprised primarily of members nominated by 
State producer organizations, along with a limited number of 
consumer advisers, all appointed by the Secretary of 
Agriculture. The Board contracts with Cotton, Inc., an 
associated non-profit organization, to carry out a program of 
consumer advertising, technical research, market research, 
and technical and marketing services for users of U.S. 
cotton. The operations of the Board and Cotton, Inc. 
promotional activities are subject to U.S.D.A. oversight. 



-4- 

II. ALTERNATIVE FUNDING SOURCES FOR 
THE COTTON RESEARCH AND PROMOTION PROGRAM 

A. H.R. 1622 

H.R. 1622, which was favorably reported by the Committee 
on Agriculture on October 5, 1987, would amend the Cotton 
Research and Promotion Act (7 U.S.C. sections 2101-2118) in 
the following manner, subject to approval in a referendum of 
cotton producers to be conducted by the Department of 
Agriculture : 

(1) Assessments imposed upon domestically-produced 
upland cotton under present law would also be imposed at the 
same rate upon imported cotton and products containing 
processed cotton produced in foreign countries and imported 
into the United States. Accordingly, if the referendum were 
approved, imported cotton and cotton products would 
contribute a share of the cost of research and market 
development conducted by the Cotton Board. 

The quantity and value of imported cotton would be 
established in accordance with regulations issued by U.S.D.A. 
The assessment on cotton products would be based on the 
cotton content of those products. The Cotton Board would be 
permitted to designate the handlers of imported cotton and 
cotton products who would be responsible for collecting the 
assessment . 

(2) The present-law authority of the Cotton Board to 
refund assessments to cotton producers who do not want to 
participate in the research and promotion program would be 
terminated. The Cotton Board could continue to allow such 
refunds before the date that the results of the referendum 
were announced. 

(3) The Cotton Board would be expanded to include an 
appropriate number of representatives, as determined by the 
U.S.D.A., of persons who import cotton and cotton products 
into the United States. 

Within eight months of enactment of the bill, U.S.D.A. 
would be required to conduct a referendum among persons who 
have been cotton producers during a representative period for 
the purpose of ascertaining whether they approve or 
disapprove of the proposed amendments. To become effective, 
the amendments must be approved by at least two-thirds of the 
producers voting in such referendum, or by the producers of 
not less than two-thirds of the cotton produced during the 
representative period by producers voting in such referendum 
and by not less than a majority of the producers voting in 
such referendum. 

Importers of cotton and cotton products would not be 



-5- 

permitted to vote in the referendum. 

Under the bill, the Cotton Board may reimburse U.S.D.A. 
for up to $300,000 for the cost of conducting the referendum. 

B. Dedicated Excise Tax and Trust Fund 

As an alternative to the assessments imposed under the 
Cotton Research and Promotion Act, the committee may wish to 
consider imposing an excise tax in an equivalent amount on 
all domestically-produced and imported cotton, and a 
derivative tax (of an equivalent amount) on imported products 
containing cotton. 

An amount equivalent to revenues from the tax (net of 
income tax offsets) could be deposited into a new Trust Fund 
established in the Treasury Department to finance the 
authorized research and promotion activities of the Cotton 
Board. 

Dedicated excise taxes and Trust Funds have been 
established to provide funding for various Federal programs. 
It should be noted, however, that the excise tax/Trust Fund 
mechanism has been used typically to fund Federal programs of 
direct benefit to the general public (e.g., highway and 
airway programs, boating safety, and hazardous waste cleanup) 
rather than programs designed to promote a specific industry 
(e.g., cotton production). 

C. General Revenues 

As an alternative to the mandatory fee structure 
proposed in H.R. 1622, or to the possible imposition of a new 
dedicated excise tax, the activities of the Cotton Board 
could be funded from general revenues as part of annual 
appropriations for U.S.D.A. programs and activities. 

D. Expansion of Current Program 

Another alternative would be to extend the current fee 
imposed by the Cotton Board to imported cotton and 
cotton-containing products, but - :> maintain the voluntary 
aspect of the fee by providing for refunds to either 
producers or importers. Such an approach would be consistent 
with the GATT requirement of treating domestic and foreign 
goods the same. 



-6- 



APPENDIX: U.S. COTTON PRODUCTION AND TRADE, 
MARKETING YEARS 1960-1986 1/ 



YEAR 



PRODUCTION 



TOTAL 
IMPORTS 



TOTAL 
EXPORTS 



(Thousand 480 lbs. bales) 



1960 


14,237 


1961 


14,283 


1962 


14,827 


1963 


15,294 


1964 


15,144 


1965 


14,951 


1966 


9,555 


1967 


7,443 


1968 


10,925 


1969 


9,990 


1970 


10,192 


1971 


10,477 


1972 


13,704 


1973 


12,974 


1974 


11,540 


1975 


8,302 


1976 


10,581 


1977 


14,389 


1978 


10,856 


1979 


14,629 


1980 


11,122 


1981 


15,646 


1982 


11,963 


1983 


7,771 


1984 


12,982 


1985 


13,432 


1986* 


9,704 


1987** 


13,900 



129 


6,857 


153 


5,056 


137 


3,429 


135 


5,775 


118 


4,195 


118 


3,035 


105 


4,832 


149 


4,361 


68 


2,825 


52 


2,878 


37 


3,897 


72 


3,385 


34 


5,311 


48 


6,123 


34 


3,926 


92 


3,311 


38 


4,784 


5 


5,484 


4 


6,180 


5 


9,229 


27 


5,926 


26 


6,567 


20 


5,207 


12 


6,786 


24 


6,215 


33 


1,960 


10 


6,655 


*** 


7,200 



* 1986 data is preliminary. 

** Forecast. 

k** Forecast unavailable. 

1/ Marketing years begin August 1. 

Source: U.S. Department of Agriculture, Foreign Agricultural 
/ice. Foreign Agriculture Circular ; Cotton (March 1986 and April 
7).